The Link Between Walmart, Food Stamps and CSR

In Jacob Kornbluth’s film “Inequality for All," entrepreneur and venture capitalist Nick Hanauer says: “The most pro-business thing you can do is to help middle-class people thrive.”

I thought about this quote while reading a new report, “How Taxpayers Subsidize America’s Biggest Employer and Richest Family,” published on April 15 (aka Tax Day) by Americans for Tax Fairness, a coalition of progressive organizations. The report estimates that Walmart workers relying on public assistance programs due to low wages cost American taxpayers $6.2 billion a year.

Another interesting figure presented in the report was that Walmart has captured 18 percent of the SNAP (food stamps program) market. Using that figure, the authors estimate that “the company accounted for $13.5 billion out of $76 billion in food stamp sales in 2013."

It got me thinking that if a substantial number of Walmart’s employees in the U.S. (1.3 million in total) receive food stamps, then the company actually profits twice from paying low-wages – not only does it reduce its costs, but it also increases its income by receiving food stamps from its employees shopping at Walmart.

But is this really the case? Is Walmart that far away from the vision Nick Hanauer offers in quote? And if so, what does it say about its commitment to corporate responsibility or its “responsibility to lead”?

First, I wanted to check how many Walmart employees actually receive food stamps.

As Krissy Clark reported on Marketplace’s excellent series (in collaboration with Slate) “The Secret Life of a Food Stamp,” there are no federal numbers on where employed food stamp recipients work. Nevertheless we can make an estimation based on Clark’s report that in Ohio, where the state keeps a list of the top 50 companies with the most workers on food stamps, about 15 percent of Walmart’s workforce receives food stamps in the state. If this is the case elsewhere in the U.S., then 15 percent of Walmart employees, or 245,000 people and their families, receive food stamps.

The second question is how much Walmart benefits from the food stamps its employees receive. The average monthly food stamp benefit per household in 2013 was about $275, or $3,300 annually. Multiply it by 245,000 households and you get more than $800 million. On average, food stamp recipients spend 18 percent of their food stamps at Walmart – if this is the case with Walmart employees, then the total amount they would spend in Walmart stores is about $145 million. Since they have employee discounts, I would assume these employees spend more at Walmart -- but it's hard to guesstimate just how much.

Based on these estimations I believe Walmart employees received last year $800 million in food stamps from the federal government and spent somewhere beyond $145 million of it in Walmart.

Does this situation make any sense? Not really. After all, Walmart made $17 billion in profits in 2013. You might wonder if Walmart could still be profitable if it offered all of its employees a decent pay so none of them could qualify for food stamps.

Marketplace’s Andrew Bouve did the math and found out that Walmart would need to raise the average pay of its cashiers, for example, from an estimated $8.81 an hour to $13.63 an hour for them to no longer be eligible for food stamps. The overall cost of such a raise would be $4.8 billion, or 28.2 percent of the company’s profits. The company could also pass these costs to the consumers by raising its prices by 1.4 percent on average.

It’s not likely that Walmart would be interested in any of this. If you listen to the company’s comments on Marketplace’s series, you learn that Walmart thinks that there’s nothing wrong with the salaries it pays. “It’s really not where you start; it's where you end up,” David Tovar, Walmart’s vice president of communications explained, adding that the number of Walmart employees on food stamps is a reflection of the state of the U.S. economy, including the country’s growing food stamp use.

Tovar may be right, but isn’t it also a result of the low wages Walmart pays to many of its employees? After all, even in the retail business you can pay entry-level employees higher salaries and still be very successful as Costco proves, paying $11.50 to $12 per hour to starting hourly workers, with increases in pay after just 800 hours of work.

And what about Walmart’s overall approach to food stamps? “We would love nothing more than a day when we didn't have to have programs like that,” Tovar told Marketplace. I believe Tovar really means it, but I’m not sure if it reflects the company’s overall approach to food stamps given that they may represent over 4 percent of the company’s sales.

You can find an indication of Walmart’s dependence on food stamps in its latest Wal-Mart's 10-K report, issued late last month. As Michael Hiltzik reported on LA Times, among the material risk factors Walmart disclosed to its share holders you can find "changes in the amount of payments made under the Supplement Nutrition Assistance Plan and other public assistance plans, (and) changes in the eligibility requirements of public assistance plans."

So while Walmart might say it hopes to see the day we don’t need food stamps anymore, it seems like it is actually worried about such a day and its consequences on the company's bottom line. The fact that Walmart also contributes to this trend with about 245,000 of its employees receiving food stamps also calls into question its corporate responsibility claims.

A company that believes to have the responsibility to lead should show at the very least how it helps its employees make ends meet without the assistance of food stamps.  Until then I would take its claim to have a “responsibility to lead” with a grain of salt.

Image credit: Thomas Hawk, Flickr Creative Commons

Raz Godelnik is an Assistant Professor of Strategic Design and Management at Parsons The New School of Design. You can follow Raz on Twitter.